Paper

Insurance bonds: Compelling value opportunity remains

Executive summary:

  • Long term, buy and hold insurance investors have been rewarded by positive outperformance
    versus the broad corporate credit market and, since 2012, versus global non financial high yield.
  • Despite some tightening since March 2020 wides, spreads on Insurance Bonds remain at
    attractive levels
  • Insurance continues to offer a complexity premium to other credit sectors that is not justified by
    strong industry fundamentals
  • Robust Solvency II capital ratios support this fundamentals view, as do predominantly
    investment grade ratings and low long term industry default rates
  • Coupons are generally sustainable and are expected to continue to be paid during this period
    of COVID 19 led stress
  • However, credit risks are not uniform across the sector, reinforcing the importance of extensive
    fundamental analytics

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